IAC Interactive Vaults 16%: Street Sees Match.com Spin-out

By Tiernan Ray

Shares of IAC/InterActive (IACI) are up $9.65, or 16%, at $69.74, after the company this morning announced its CEO, Greg Blatt, will become chairman of a new division, Match Group, comprising the Match.com dating service and related assets, and that there will be no CEO for the company overall, with Blatt and other division leads instead reporting directly to Chairman Barry Diller.

With the re-org, IAC will be organized into three divisions — Match, a “search and applications” business, and a “media” business.

The idea of a company with no CEO is not as important as what the Street expects will be a very valuable spin-0ut, eventually, of the dating business.

Topeka Capital Markets‘s Victor Anthony, who has a Buy rating on IAC shares, and raises his price target to $75 from $63, on the expectation that this is preparation for Match being spun out at some point, and he likes the way the business is doing:

Match is the undisputed leader in the personals industry which is seeing secular strength from a rising singles market, the rapid rise of social media which has made sharing personal information online acceptable, and a general trade down in the economy (cheaper means of finding a mate). The model is characterized by recurring and predictable subscription based revenue streams with high incremental OIBA margins. We believe Match can sustain double digit growth in both subs and revenues with OIBA margins in the mid-to-high 30% range over the next few years. On the 3Q call IAC indicated that Match could potentially generate $500mm in EBITDA in 2016, 30% above our current estimate. If we apply a 12x multiple (22% implied 3yr CAGR) to that figure and discount that value, Match is worth $5B today (vs. $3.2B-$3.5B in our updated SOTP).

At the margin, this makes a potential spin off of the personals business more likely, in our view, which could be a value creating event. We would note that the company has a substantial history of consolidating and spinning of assets, and we think that the online personals category as a whole is an attractive segment.

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Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.